September 11- Reflections: In Troubled Times, Shopping Became the New Patriotism ; ANALYSIS: GLOBAL ECONOMY

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FOR THE world economy this has been a year of first of fear, then of hope and then of disappointment. Now, looking forward, the prospect is for a year of huge uncertainty with a few bright spots in the distance.

The terrorist attack struck a world economy that was already struggling. The US, which had been the great motor of growth through the second half of the 1990s, was actually already in recession during the first nine months of 2001 - though we did not know that last autumn. The fall-out from the bursting of the high-tech bubble had already savaged the financial markets and - again we did not know it at the time - was about to be further undermined by accounting failure and corporate fraud.

Though the US economy was thought to be more affected than either Europe or Japan by both the hi-tech bust and the market collapse, as things have turned out both continental Europe and Japan have fared worse than the States.

The thing that saved the American economy in the months after 11 September was the American consumer. Shopping was the new patriotism. Car sales in particular surged, with manufacturers using the very low interest rates to give free credit to buyers. Those low interest rates also supported the housing market. America has not had a home price boom quite on the scale of Britain (and of course there are even larger regional variations) but prices have in general been very strong and this has to some extent offset the fall in people's share portfolios. Indeed people who have houses in popular areas and managed to avoid the worst of the hi-tech share bust have done rather well over the past year.

In the past few months there have been some signs that the American consumer boom has eased off but it is too early to say that the consumer boom is really over. At some stage Americans will have to rebuild their savings but the rest of the world should hope that they do so slowly. The US market has been the one thing stimulating both the eurozone and Japan.

Corporate malfeasance? Well, as anyone who has visited the US recently and talked to ordinary Americans would know, there is real fury at the way too many members of the corporate elite have lined their own pockets at the expense of employees and small investors. The collapse of the markets has undoubtedly been made worse by this and this is making it harder for decent firms to re-finance themselves if they need to. But has it had a direct, identifiable impact on the economy? Maybe, but it is hard to see it.

The eurozone has been the big disappointment. In theory Europe should have done better than the States but it seems to have done worse. One big drag on the eurozone has been the reluctance of Germans to spend their euros. Retail sales there are running down more than 4 per cent year-on-year and as you can see from the graph, consumption across the eurozone has been very weak for the first half of this year.

France managed a reasonable recovery after a bad final few months of last year but consumption there is weak and in the past couple of months unemployment has started rising again. The other bog eurozone economy, Italy, has been a persistent under-performer and nothing before or after September 11 seems to have changed that.

In the past two months the eurozone performance has deteriorated further. The growth forecasts are now being revised downwards and there is a real danger of renewed recession in the worst performing eurozone member, Germany. Slow growth cuts tax revenues and both Germany and France risk breaching the 3 per cent ceiling on budget deficits under the Stability and Growth Pact. So their scope to boost their economies by greater public spending is very limited. And of course they are unable to cut interest rates because these are set by the European Central Bank. It has been calculated that the ECB interest rate at 3.25 per cent, is one percentage point too high for Germany, though it is about right for France. …